The three-month détente in the US-China trade war, announced on Monday morning, is undoubtedly a relief for the global economy. Both sides agreed to slash duties on each other by 115 percentage points and established a “consultation mechanism” to help resolve ongoing trade disputes. Beijing also said it would “suspend or cancel” non-tariff measures taken against America, which includes curbs on critical mineral exports. The thawing of ties between the world’s two largest economies will buoy households, businesses and financial markets at home, as well as in countries caught in the crossfire. But optimism should be tempered.

As with the US-UK trade agreement last week, the White House is selling this as a win. It could play well with Donald Trump’s base. The threat of steep tariffs has enabled the US president to extract concessions from Beijing. Traders had also not expected the weekend of talks in Geneva to result in such a precipitous climbdown by both countries. US stock markets had already recovered most of their losses since Trump unveiled his “reciprocal” tariff plans on April 2. On Monday, as further trade war pessimism unwound, American and Chinese equities rallied further, the dollar surged and gold tumbled.

But investors ought to tune out the short-term noise and focus on the bigger picture. First, though tariff rates between the US and China are no longer in three digits they are still elevated in historical terms. The effective US tariff rate on goods from China is now around 40 per cent, according to Capital Economics. That is significantly higher than before Trump’s second term began, and the White House is still mulling sector-specific duties. An economic hit from the initial prohibitive tariff rates between both countries is also in the pipeline. Shipping between Shanghai and Los Angeles won’t jump back overnight.